The logic is simple. The future trajectory of company earnings will be what it will be. That is the source of the value of equities. If you pay more for the same old set of future earnings, you get back less per dollar invested.

I think your logic is missing a step which is what to invest in now and how it impacts total return. Your Bayes comment is not practical in real terms as the time required to get to an acceptable price is unknown.

The question is, invest in "x" now, or invest in "y" (perhaps T-bills) and wait until "x" is at a price that matches your evaluation of good value and then invest in "x".

From what I have looked at, it is better on average to invest now, rather than wait in T-Bills.

As an example. Say you have an income stream of $1/day since the beginning of 1950. You can invest the $1 in the equivalent of SPY everyday, or you can invest in T-bills at 5% p.a. and when the market is a fixed amount below the maximum previous value, you can take all the money from T-bills and invest. Subsequent $1/day will be invested in the market if it is below your threshold, or held in T-bills until it again drops below the threshold.

For the investment in the market everyday, ending balance July 18, 2024 is $5,806,214. For thresholds of 0.5 to 0.9, the balances are below. Waiting for the market to come to your expectations could be significant lost opportunity.



0.5_________$859,832
0.6_________$4,211,864
0.7_________$3,905,114
0.8_________$4,707,752
0.9_________$5,640,156


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